Complex trading system #5 (Fibonacci trading)

I've tested this strategy for about 2 months in a demo account. It works about half the time and currently I'm at break-even. The main problem as I see it, is that the S/L must be set too wide in order to allow the trade to develop. Then in the case it goes bad, the stop loss is too far back compared to T/P level, so risk/reward ratio is not good enough. If we could figure out a way to detect a bad trade sooner, then I guess it could bring slow but steady profits.

There are two things we can check:

I think we can label a trade as potentially bad or questionable if the following condition is true:
For Long orders:
1. Upon entry on the close above 5WMA and according to the main rules, keep an eye on price bars. A bar should not close back below 5 WMA while we are still in Fib retracement area, e.g. while price trades anywhere in between 38.2 and 61.8 retracement levels.
2. If condition #1 is true, we've got a suspect. You may decide to exit or tighten your stop.
3. Every other case of price bar closing below 5WMA when we have moved outside and at least one full bar away from Fib retracement level is fine.
Opposite for short.

Example:

Now I'm adding one more indicator: BB 20, 1.
The idea is to hold onto a wobbly trade until price remains above Bollinger Bands mid line (for uptrend).
Might not be the best case with a current trade, but still:

Here is another one:

And finally some common sense:
Would I look for opportunities to trade after seeing something scary as this?

Certainly not. And if I happen to be caught somewhere in, my bias would be to hold upwards until I'm above 50 SMA. And then there is a first close below the lower Bollinger band - this is where you no longer want to be Long.

Best regards,
Edward

I think between the various comments on this board we can add some further confidence to this strategy! Team work is great!!

At the risk of turning the strategy into something over complicated which goes against the grain for me personally (as I like simple), could we not add one further element to the check. If it looks like things are going against we:

1. Hold until it meets the mid BB line (as above)
2. And that RSI is > 50 (long) or < 50 (short)

It is just that in my experience (limted!) the mid BB often appears to be a resistance level in itself and typically only penetrates that level if the RSI is also in support of it. I guess it would be a shame to exit the second the mid BB line is hit only to find it was actually a resistance level and then did develop as we originally thought.

Make any sense - or would everybody just exit once it hits the mid BB and cut losses?

Of course, it makes sense. Exiting on the hit/test of BB mid line is not an option, as it does provide support/resistance to the price. With BB one should wait for the candle to breach the mid line and actually close on the other side of it to consider exiting.

Regards,
Edward

Hi, my first post and my first real use of a Trading Strategy! When there is a major trend, that has a few dips, creating mini trends in the same direction, is it best to always create new Retracements from the original or more recent (higher) lows? I guess another way of saying it is, how far back should you go? I tend to use this with a 15 min, with a 10 & 30 in reserve. Many Thanks Alan PS Is there a strategy to hop on to a trend when there seems to be no retracement for quite a while?

Hi Edward,

I'm using this great trading strategy on the 5 min. time frame. Thnks for sharing this system.

I'm start to trade ad 8.30(GMT)Because market could be very volatile first 30 min. Is it also wise to do that when US market opens?
So to stop trading at 12.00(GMT) and start again at 12:30(GMT)?

thanks

Best regards

Dennis

Thank you, Dennis

Regarding the beginning of a trading day, yes, the market could be volatile. However, if trend direction is very obvious, there will be not much indecision and hesitation once the session is open.
Regarding 12 and 12:30 gap, same is true. Still, you have the point about risks during the market opening minutes, so it would be wise to pause during the first half hour of the session, especially when we deal with moving averages and support/resistance levels.

Best regards,
Edward

Oke thanks.

Continual monitoring is not an easy job. So to take a pause during opening US markets and take a quick lunch is not a bad idea ;-)

regards

Dennis